2019 Financial
and Social Report

Credit risk

Credit risk means uncertainty about the Client’s compliance with the financing agreements concluded with the Group i.e. repayment of the principal and interest in the specified time, which may cause a financial loss to the Group.

The credit policy pursued in the Group is based on a set of principles such as:

  • centralization of the credit decision process;
  • using specific scoring/rating models for each Client segment/type of products;
  • using IT information (workflow) in order to support the credit process at all stages;
  • existence of specialized credit decisions departments for particular Client segments;
  • regular credit portfolio monitoring, both at the level of each transaction in the case of major exposures, and at credit sub-portfolio level (by the Client segment, type of product, distribution channels, etc.);
  • using the structure of limits and sub-limits for credit exposure in order to avoid credit concentration and promote the effects of credit portfolio diversification;
  • separate unit responsible for granting rating to corporate Client, thus separating the credit capacity assessment and credit transaction granting from his creditworthiness assessment.

In the area of credit risk, the Group focused in 2019 year on adjustment of credit policy to changing economic conditions and improved the tools and credit risk management frameworks, in particular:

  • updated the Risk Strategy, for the years 2020-2022;
  • optimised the methodology, tools and processes of credit risk management for retail clients;
  • rebuilding rating models using new data sources to increase their discriminatory power;
  • developed of a new rating model for corporate customers;
  • updated sector risk classification and limits.

In retail segment particular attention was focused on the implementation of changes in the area of ​​consumer lending policy, but also on development in the area of ​​mortgage loans. The new solutions concerned, among others:

  • scope and sources of information and documentation obtained from clients in the process of granting consumer loans;
  • the rules for granting credit products to customers with a relationship with Bank Millennium;
  • improvements in the area of ​​making credit decisions in the mortgage process;
  • new processes in electronic sales channels.

In the corporate segment, the Group focused on adapting its lending policies and regulations to changing legal conditions (particularly restructuring and bankruptcy law) and on measures to streamline and accelerate credit processes. The new rating model has been introduced, including behavioural data in addition to financial and qualitative data. The industry policy and risk tolerance for particular sectors were also updated. As in previous periods, work was continued on the improvement of IT tools supporting processes, particularly the monitoring process and the extension of credit offer.

All of the above changes in both the retail and corporate segment enabled the Group to achieve defined goals in terms of credit portfolio growth and maintaining the risk at an acceptable level defined in the Risk Strategy.

Loan portfolio quality

Share of impaired loans, including stage 3 portfolio and POCI Assets (Purchased or Originated Credit Impaired) in default, in total loan portfolio was at the end of December 2019 on the level of 4.56%. This means a slight increase from 4.52% a year ago, but when looking into its evolution during this year in the scope 4.3% – 4.6% we can observe stabilisation in this area. Thus, the Group still enjoys one of the best asset quality among Polish banks. Share of loans past-due more than 90 days in total portfolio has increased slightly during last year from 2.5% in 2018 to 2.7% in December 2019.

Coverage ratio of impaired loans, now defined as relation of all risk provisions for stage 3 loans and POCI in default, had decreased during the year from 74% in December 2017 to 62%. This change is directly related to the acquisition of the Euro Bank portfolio. Pursuant to the provisions of the IFRS 3 standard, at the time of acquisition, the Euro Bank portfolio was valued and disclosed in the books of Bank Millennium at fair value. In the case of an impaired portfolio, which at the time of the acquisition was shown in the books of Bank Millennium as POCI, the fair value was close to the net value of this portfolio in the books of Euro Bank, and the value of balance sheet provisions for this portfolio at the time of acquisition was 0 (zero), which had a direct negative impact on provision coverage ratio. Without this effect, the loan coverage ratio would be 74.8%. Coverage by total provisions of loans past-due more than 90 days also decreased from 133% one year ago to 106% now.

The evolution of main indicators of the Group’s loan portfolio quality is presented below:

Group loans quality indicators 31.12.2019 31.12.2018
Total impaired loans (PLN million) 3 276 2 463
Total provisions (PLN million) 2 046 1 832
Impaired over total loans ratio (%) 4.56% 4.52%
Loans past-due over 90 days /total loans (%) 2.69% 2.52%
Total provisions/impaired loans (%) 62.4% 74.4%
Pro-forma coverage ratio (no PPA effect *) 74.8% n/a
Total provisions/loans past-due (>90d) (%) 105.8% 133.1%
(*) Purchase Price Allocation (PPA) implied consolidation of Euro Bank impaired (stage 3) portfolio at net value

Impaired loan ratios by segment show a downward trend in the retail portfolio from 4.8% to 4.7% (including mortgage loans from 2.81% to 2.53%), while this ratio for the corporate portfolio increased during the year from 3.9% to 4.1% (to the same extent for both the leasing portfolio and other enterprises). Last year, the value of foreign currency mortgage loans increased by less than 2% year-on-year (in PLN terms), as a result of purchasing of approx. PLN 1 billion in FX mortgage loans in connection with acquisition of Euro Bank. However, it should be noted that ex-Euro Bank mortgage portfolio enjoys a guarantee and indemnity from Société Genéralé. Excluding this portfolio, the share of FX mortgage loans in the total loan portfolio fell from 26.6% to 19.2%. The improvement in the currency structure of the mortgage loan portfolio was supported by a significant increase in sales of loans in PLN and also the acquired PLN portfolio of Euro Bank.

The evolution of the Group’s loan portfolio quality by main products groups:

Portfolio quality by products Loans past-due
> 90 days ratio
Impaired loans Ratio
31.12.2019 31.12.2018 31.12.2019 31.12.2018
Mortgage 1.19% 1.24% 2.53% 2.81%
Other retail* 6.31% 7.19% 9.51% 11.30%
Total retail* clients 2.79% 2.63% 4.71% 4.80%
Leasing 2.28% 1.92% 4.12% 3.89%
Other loans to companies 2.51% 2.52% 4.15% 3.93%
Total companies 2.42% 2.30% 4.14% 3.92%
Total loan portfolio 2.69% 2.52% 4.56% 4.52%
(*) incl. Microbusiness, annual turnover below PLN 5 million

The Group’s portfolio is characterized by appropriate diversification, both due to the concentration of the largest exposures and due to the concentration in sectors of the economy. Participation. The 10 largest exposures remain at a safe, low level of 4.1% (decrease in 2019 from 4.8%).

The share of main sectors in the Group’s portfolio is presented in the chart below:

Search results